Tough times mean banks are getting meaner and stricter about who they are prepared to lend to.

It’s more vital than ever that you check your credit record, understand what affects your credit score and then get it as squeaky clean as possible. That will give you a fighting chance of getting that mortgage, loan or credit card – and at the very best rate.

Lenders use credit reports to help them decide who to dole out cash to and at what price. You need to show you’re a safe bet or you’ll pay way over the odds in interest.

There are lots of mistaken beliefs about how credit reports work and what affects them.

Research by CreditExpert shows eight out of 10 of us believe that being unsuccessful with one lender will harm how others score you. While a ‘footprint’ of lenders’ searches is recorded, the fact that they declined you credit is not. But if you rapidly apply elsewhere, too many footprints will set alarm bells ringing that you are in financial difficulty.

Around a quarter of people believe that missing a mortgage or credit card payment will not have an impact on their credit rating – but these are two of the biggest negative factors on a credit score.

On the other hand, paying off a mortgage has a major positive effect – the bigger the amount of credit, the better repayments are for your rating. But the worse it will be if you miss one. The order of importance for things that affect your rating are: mortgage, followed by loan, credit card, store card, overdraft.

Peter Turner, managing director at Experian Consumer Services, says: “Your credit report is used by lenders to gauge how well you manage credit, if you pose a creditworthiness risk, and it influences the rates you get.”

By knowing what’s in your credit report you will see what potential lenders see and can take steps to improve how you are rated.

Make improvements

One way to improve your score is to take out a credit card and make regular repayments.

UK customers with past debt problems or a limited credit history can get cards from Luma and Vanquis with rates well below payday loan levels.

Borrowing £400 at 39.9% will cost £13.55 interest for a month. With Wonga you’d pay £125.48 interest and fees at 4,214% APR.

You need to build up a history of using the card and making payments on time EVERY month. Repay the balance each month to boost your score without paying any interest.

For example, buy petrol on it once a month then pay off the bill in full.

'I took out a card to buy a home'

Dad Chris Reid got himself in debt when he was younger and has spent the past four years improving his chances of getting the mortgage he really wants to buy a family home.

“Meeting my wife in 2008 kicked me into action to get my life back on track,” says Chris, 31, from ­Maidstone in Kent.

“I saw an advert for CreditExpert and checked out my credit file. I had a score of just 320. I knew it wouldn’t be great but I was a bit shocked when I realised it was so low and I was in the bottom end of the very poor category.

“I took out a high-interest credit card so I could try to rebuild my rating. It wasn’t to spend on everyday things, it was just for emergencies and to prove I was ­reliable and could make regular repayments.

“I spent around £50 on it each month and paid the bill off in full. I know it’s been four years but my score has now reached 881, which is great as I’m well on my way to achieving that mortgage goal.

“You have to stick with it. These things definitely don’t happen overnight. But, it has paid off for me. Even though I’m still paying off debts it feels good to be more in control of my finances. I don’t have to worry I will be turned down.

“I’m feeling much moreconfident and thinking about changing my mobile phone con- tract and applying for a mainstream credit card.”

5 steps to improve your credit score

Make sure you are registered on the Electoral Roll at your current address. If you are not it can cause delays when you apply for credit, and some firms may turn you down flat if they can’t confirm where you live.

Make sure all your credit report info is fully accurate and up to date. Dispute it if it’s not.

If you have had previous credit problems and there were special circumstances such as losing your job, family bereavement etc, explain this on your report by adding a notice of correction to any late payments from this period.

If you had financial links to other people which are no longer relevant (such as an ex-partner) ask for them to be removed from your records.

Close accounts you no longer use. A lot of unused credit you can access without further checks may negatively affect your rating. It can also make you more vulnerable to fraud.

Facts and myths about your credit score

Here are the myths versus the reality about what will and won’t harm your credit rating:

Myth: Being turned down for credit will harm your rating.

Reality: Being turned down for credit is not held on a credit report so has no effect on how you’re rated. What does have an impact is if you’re unsuccessful and then repeatedly apply elsewhere without finding out what the problem is.

Every search on your file that lenders make when they assess you leaves a footprint. Too many in too short a time can look like you’re in financial trouble, which makes you look like a risk.

Myth: Regularly paying off utility bills will improve your score.

Reality: You should, of course, always pay your utility bills. But not all utility companies share their information with credit reference agencies, so don’t assume that lenders will know that you’ve had a faultless history with your energy company.

Myth: Working in a salaried job will improve your score.

Reality: The fact that you have a job that pays a regular salary is not on your credit report. However, it will form part of a credit application and being employed and paid monthly is a sign of stability, which lenders like. They will also ask about your income to ensure that you can afford any new borrowing.

Myth: Being arrested or having a criminal record will harm your rating.

Reality: This sort of information is not on your credit file.

Myth: Being on the electoral roll won’t improve how you’re rated for credit.

Reality: This is one of the easiest ways to improve how you’re rated. It lets lenders corroborate your address and identity and is a sign of stability.

Myth: Having several cards will harm how you’re rated.

Reality: It comes down to how you use them. If you’re struggling to juggle payments, lenders will see this. But if you’re using less than 50% of your available balance, can afford payments and are making them on time, these are signs of someone who can sensibly manage their credit.

It’s often better to have several cards with a lower balance on each than the same total amount all on one card. For example, if you had five cards with £1,000 credit available on each and each card was £100 in debit, but you transferred all the balances to one and cut up the others, it would probably have a negative impact. That said, some lenders may perceive a risk if your available balance is far, far more than you could ever afford to repay.

Reality: Missing repayments is one of the most harmful things on your credit report. Lenders want to know you are reliable and not always making repayments says the opposite. Missing one or two may not make too much difference, but if it looks like regular behaviour, lenders will shy away.

And remember that missed payments stay on your account for six years – so you could be storing up real ­problems for the future.

Myth: Paying off a credit card on time has no impact on your rating.

Reality: A strong history of regular payments and settling of accounts is exactly what lenders want to see.

Myth: Having a credit card will harm your rating.

Reality: If you don’t use credit, lenders find it hard to assess whether you would be a good person to lend to. Remember, they are looking for evidence that you are a safe bet.